Comments on the

FCC forum on Access to Bandwidth

James Love

Consumer Project on Technology

202.387.3030; fax 202.234.5176;

January 23, 1997

We are pleased the Commission has scheduled today's forum on access to bandwidth. With the rapid emergence of the Internet as the world's most dynamic information technology, the most vexing problem concerns the poor choices available for most residential consumers. Information services that are delivered over today's analog modems are severely constrained by the limited bandwidth. We are also faced with a massive public relations effort launched by several major local exchange carriers (LECs), making a number of alarmist and often misleading statements about congestion of the public switched telephone network.

1. Accounts of Network Congestion Are Greatly Exaggerated by the LECs

To read current newspaper accounts, one would think the public switched telephone network is about to collapse due to heavy use by residential consumers dialing into Internet Service Providers (ISPs). In fact, there is no evidence that current residential modem usage is placing greater demands on the public switched network than non-modem usage. Bell Atlantic and other LECs cite studies to suggest that residential modem calls are longer than voice calls, but this is hardly conclusive. One 20 minute modem call is certainly less of a burden on the network than 100 five minute voice calls, for example. To the degree that network costs can be allocated on the basis of usage, one would typically look at the total number of calls and total minutes of connection. Because call setup consumes network resources, one long call is actually cheaper than several shorter calls which sum to the same total minutes.

What are the data on usage? Let's look at the American Online Experience. Prior to its new flat rate offering, AOL consumers reportedly logged on for an average of 14 minutes per day, or about 7 hours per month. After the flat rate plan was implemented, usage reportedly jumped to about 32 minutes per day, or about 16 hours per month -- hardly earth shattering numbers. These data are not that much different from independent studies by Yankelovich, Nielsen and others, who report average usage of 12 to 22 hours per month for various online or direct Internet service providers. The average connect times are likely growing, but they remain far lower than one might imagine.

There is another way to look at usage. The ISPs have limited capacity in terms of incoming lines. Before the flat rate, AOL reportedly was engineered to allow about 3 percent of its consumers to connect at any one time. Now AOL is expanding its network, so that it will have about 400,000 incoming lines, for about 8 million customers -- about one line for each 20 customers. This will permit 5 percent of the AOL customers to be connected at any one time. Based upon our research, most ISPs have 10 and 20 customers per incoming line, allowing a maximum of 5 to 10 percent of customers to be connected at any one time. This is a hard constraint on residential consumers. They can't connect in larger numbers because the ISPs have limited capacity.

How does this compare to capacity on the public switched network? Bell Atlantic says the residential voice network is built so that 1 in 7 consumers can connect at any one time -- or roughly 14 percent. Thus, after the AOL expansion of its network, when it can accommodate 5 percent of its customers, it will be using at most roughly one third the capacity of the public switched telephone network. Clearly residential data calls cannot be the source of congestion of the public switched network.

Of course, residential consumers are calling ISPs, and the ISP incoming lines may be used intensively. This doesn't have anything to do with the way the residential consumers call. Regardless of whether the residential consumers called 5 hours per month or 150 hours per month, the ISP would have an incentive to purchase the number of incoming lines that gave customers an acceptable level of service. Indeed, any business line user makes a similar calculation.

For additional discussions of congestion issues, see Fred Goldstein's November 1996, Maryland ISDN testimony, at

2. We Need To Move Toward An Architecture That Permits Permanent Digital Residential Connections To A Wide Area Network.

While current levels of residential Internet usage do not place noticeable demands on the public switched network, one can imagine a future where everyone, or at least everyone who wanted to, would have a permanent digital connection to a wide area network. For this type of connection, one would expect something different than the current public switched network architecture. There are likely competing visions of how this can be accomplished: through a variety of xDSL technologies, cable modems, wireless connections or other alternatives. This is something we want to migrate to. One can imagine broad deployment of new technologies sometime in the next ten years. But what about now?

3. The Best Available Here-And-Now Residential Technology is ISDN

If we could use press releases to surf the Internet, everyone would be using cable modems, ADSL, or satellite communications to get fabulous last mile bandwidth. Unfortunately, these new services have been over-promised and under-delivered. ISDN is the best ubiquitous technology for higher speed connections. What types of services can be delivered over ISDN? Very high quality audio, and rough but interesting video. Moreover, ISDN can provide a very fast launch and disconnect, and multiple ISDN lines can be bonded together for greater bandwidth. ISDN is something that can be done right now.

4. High Prices For Residential ISDN Have Stifled Deployment

The problem isn't technology -- it is monopoly pricing by the LECs. In Japan, residential ISDN is priced about $10 per month more than a POTS line. In some European markets, there is no difference between POTS and ISDN rates. Many U.S. businesses pay no extra for ISDN voice service. But in the United States, some LECs are charging very high fees for residential ISDN connections. While interest in the Internet is exploding and there is a great hunger for more bandwidth, the LECs are killing ISDN as a transition technology, both through high pricing, and by sending a signal to consumers and information services developers that the technology has an uncertain future.

The most annoying features of these high prices are stiff usage charges. Nynex, Bell Atlantic, U.S. West, PacBell, GTE, and other LECs have filed tariffs asking for fees of 1 to 3 cents per minute (per B channel) for making local calls. Meanwhile, several LECs are providing cost data to PUCs indicating that their own estimates of direct usage costs are closer to 10 to 12 cents per hour, or 6 to 17 percent of the per-minute charge billed to ISDN users. US West and Bell Atlantic offer complex "call pack" options, that give consumers deep discounts on usage, but only if they pre-pay for usage they may never need. Under these plans pre-paid ISDN usage costs $.75 to $.10 per hour (per channel), depending upon the size of the call pack.. Larger users typically get the largest and deepest discounts. (See

Not every state or company has high residential ISDN rates. While Ameritech charges one of the highest prices in the country to consumers in Indiana, it offers flat rate ISDN service in Ohio, Wisconsin, Illinois and Michigan at $26 to $34 per month. Bell South charges $79 in North Carolina, but only $30 in Tennessee. U.S. West rates vary from state to state, depending largely on the views of state regulators. In Utah, the PSC recently ordered a set of call-pack and flat rate options which ranged from $30, for 50 hours, to $64, for flat rate service. Roseville, an independent telephone company in California, offers a voluntary flat rate tariff of $29. The largest California LEC is PacBell, and it now charges $24.50 per month, with unmetered usage after 5pm and on weekends. (See also,

In our view, one of the most interesting telephone companies in the United States is the Northern Arkansas Telephone Company (NATCO). NATCO is a surprisingly sophisticated rural LEC, run by Dr. Steven Sanders, who holds degrees in engineering and physics. NATCO offers flat rate residential ISDN for $17.90 per month, roughly $7 more than the cost of POTS. To encourage ISDN usage, NATCO offers free Internet connectivity to its customers. Dr. Sanders believes ISDN is potentially very important for rural communities, who are unlikely to see deployment of cable modems or ADSL for many years.

5. NTS Costs Of Residential ISDN Are Less Than $5 Per Month More Than POTS

In the recent FCC proceeding on ISDN and the Subscriber Line Charge, five LECs reported the ratio of POTS and BRI ISDN costs for local loop only costs, as well as for all non-traffic sensitive (NTS) costs. This data was reported in the current NPR, on page 36. As a group, the companies reported local loop costs lower for ISDN than for POTS. For all NTS costs, the companies say BRI ISDN costs are 24 percent higher than POTS. If NTS costs are in the neighborhood of $20 per BRI line, the additional costs of ISDN would be less than $5 per line. These are averages, and some companies reported lower figures, of course. For example, US West said the NTS cost of BRI ISDN was $18.52, only $1.18 higher than its NTS cost for POTS. (In the Matter of End User Common Line Charges, FCC Docket No. 95-72, Appendix A , filed June 29, 1995).

When competition exists, LECs have priced ISDN more aggressively. For example, ISDN Centrex is often priced far below available residential rates. In at least one Bell Atlantic state, the LEC claimed that usage costs for ISDN Centrex, a service facing competition from PBX vendors, were less than $1 per month.

6. Regulators Need To Keep One Eye On The Present, And One Eye On The Future.

Government regulators and policy makers must live in the present and plan for the future. If new technologies like cable modems or ADSL are truly seven years from widespread deployment, we must do something about the present. To put things into perspective, consider that seven years ago the Internet was barely visible to most Americans, 2,400 baud modems were fast, Netscape and other graphical web browsers had not been developed, there was no RealAudio, no Yahoo, and no intelligent agents to gather information for consumers. Seven years is a long time for the Internet, and if we have something much better than analog modems now, we shouldn't wait seven years before we have faster residential connections.

We also want to move toward a true data network. Vendors of network facilities now believe they can take incoming calls at the Central offices and route data calls to ISPs on a more efficient data network before they consume scarce switch and interoffice trunk resources. Unfortunately, Bell Atlantic and other LECs are not pricing this service competitively.

7. Regulators Need To Protect ISPs Against Anticompetitive Actions By LECs.

Bell Atlantic wants regulators to increase tariffs selectively on ISPs, so that POTS and ISDN lines will be priced high enough that the new packet switched services will become more attractive. If I owned Bell Atlantic, I'd ask for this too. Not only will this help Bell Atlantic market a new service, but it will raise costs for unaffiliated ISPs, which compete against Bell Atlantic's own in-house ISP service.

The Commission should be wary of proposals that would impose new fees on ISPs which compete with LECs. In California, PacBell was petitioning the FCC to eliminate the ISPs enhanced service exemption (ESP), because of the alleged congestion problems that Internet users are imposing on the public switched network. At the same time, PacBell was promoting second residential telephone lines, priced at $11.25 per month, by running promotions that read:

Order another home phone line today and get 5 months free unlimited Internet access with Pacific Bell Internet. Act now and we'll waive the usual $14.95 sign-up fee for Pacific Bell Internet.

Aside from the outrageous hypocrisy of running both this promotion and a PR battle that asserted Internet users were causing unbearable network congestion, it demonstrates the dangers facing independent ISPs. If you ran a California ISP, wouldn't it be hard to compete with a firm that was giving the service away free for 5 months?

Indeed, several LECs are running promotions for residential second POTS lines. These are typically priced below what the company claims are its average NTS costs. The lines also do not typically generate any new toll traffic. (People don't get second lines to make two long distance calls at the same time). Since these second lines are marketed to modem users, one has to doubt the LECs complaints about network congestion. It is also reasonable to assume that the $11.25 per month for a PacBell second line is actually above PacBell's costs.

8. Possible Incentives For Better Bandwidth Management.

Here are a few thoughts on possible incentives for better bandwidth management.

A. Flat rate or so called "virtual flat rate" (a service with a 200 hour usage allowance) tariffs give the LECs an incentive to solve bandwidth management problems. Metered usage tariffs take those incentives away, since anything that gets consumers off the meter reduces LEC revenues. Push for flat rate tariffs, or tariffs with large usage allowances, such as the 200 hour allowances proposed for PacBell. If possible, don't meter off-peak usage.

B. Rather that impose new usage fees on ISPs or residential users of POTS, consider the elimination of usage charges on ISDN and other higher bandwidth digital services, when calls are routed away from the circuit switched network to a more efficient packet switched network. Give ISPs and consumers a positive incentive to use both higher bandwidth technologies and the packet switched networks.

C. Reward LECs for good deployment of ISDN or other digital services, punish LECs for poor deployment. I would use a formula that would compare each LECs penetration of residential ISDN and other digital services to the average penetration level for all LECs. LECs with poor penetration should make larger payments to the Universal Services Fund than LECs with good penetration.

D. Unbundle network elements on a flat rate basis, so that new entrants can deploy new digital services without high usage charges. Don't permit LECs to charge per minutes fees for the local loop.

E. Officials in Japan are concerned that the U.S. is far ahead on the development of the Internet, and they attribute this lead to the U.S.'s flat rate pricing for local telephones. NTT has introduced a modest flat rate off-peak calling plan, which works for two telephone numbers -- one for a bulletin board, and one for an ISP. It would be interesting to know if prior registration of telephone numbers would make it easier to take data calls off the circuit switched network.

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